UPDATE 1-Cost-cutting factor in Citgo refinery fire-sources

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By Erwin Seba

CORPUS CHRISTI, Texas, July 23 (Reuters) - Deferred repairs aimed at reducing costs may have played a role in in a fire last Sunday at Citgo Petroleum Corp's Corpus Christi, Texas, refinery which seriously wounded one worker, according to sources familiar with events leading to the blaze.

U.S. refiners have been putting off repairs and routine maintenance to cut costs since margins began sliding in mid-2008 as the recession hit nationwide fuel demand.

The fire in the plant's alkylation unit came after a pipeline failure triggered a vapor cloud, the sources said.

"There are massive lists of items needing repair that have been put off," said a source familiar with refinery operations.

"We don't have any information as to how the fire developed," said Larry Elizondo, a spokesman for Citgo, the U.S. refining and marketing subsidiary of Venezuela's state-owned oil company, PDVSA.

"All I can tell you is what I've already provided," he said.

One worker from the Citgo refinery, Gabriel Alvarado, 34, has undergone two surgeries for severe burns that extend over 60 percent of his body. He is being treated at the burn unit in Brooke Army Medical Center in San Antonio.

Witnesses said at least one pipe leading to the alkylation unit was seen shaking or jerking prior to the fire on Sunday morning, said the sources, who spoke on condition of anonymity because they have not been authorized to speak publicly.

One witness described the 10-inch steel pipe as moving like a cooked spaghetti noodle.

The accident marked at least the fourth time in the U.S. refining industry since 2005 that such a release has resulted in a fire, the third in which workers were injured or killed.

A U.S. Environmental Protection Agency spokesman has said the fire broke out in butane piping and vessels near the alkylation unit, which produces high-octane blending components for gasoline.

When the fire ignited, workers began calling for water cannons to spray the unit in case hydrofluoric acid was released. It was several minutes before the cannons were set off, the sources said. They said the acid was likely released after the water cannons began operating.

Hydrofluoric acid can cause severe burns and damage human hearts, lungs and bones.

Investigators have been prevented from visiting the site of the fire because the blaze did not go out until Tuesday and water contaminated by the acid covers the area of the blaze, the sources said.

Robert Hall, lead investigator for U.S. Chemical Safety Board's probe of the Citgo fire, said on Wednesday that safety issues may delay investigators from getting to the alkylation unit for two weeks.

Monitors at the refinery and in nearby neighborhoods have not detected hydrogen fluoride in the air, the EPA and Texas Commission on Environmental Quality have said.

The blast is at least the second refinery fire from a pipe failure this year, according Reuters records.

Cost-cutting, including deferred repairs and maintenance, by BP Plc (BP.L) was seen as factor in a deadly 2005 blast at the Texas City, Texas, refinery that killed 15 workers and injured 180 other people, according to a U.S. Chemical Safety Board report issued in 2007.

Pipe failure is being looked at as the cause of a May explosion and fire at Sunoco Inc's (SUN.N) Marcus Hook, Pennsylvania, refinery. No one was injured in that blast.

The BP Texas City refinery blast also began with a vapor release, according to investigations.

In addition to harming people in or near refineries, fires and explosions can have widespread economic affects by triggering price spikes across refined products and crude oil markets. (Editing by David Gregorio)